Düsseldorf, Germany

Berlin, Germany

Baden Baden

Stuttgart

Geschloss

Braunlingen

Donaueschingen

Schwarzwald

Black Forest

Freiburg

Bodensee

Konstanz

Sigmaringen

Schloss Cafe'

Tegernsee

Household Wealth in Europe

The ECB has finally published the all-country report which gives us an indication of where household wealth is located and where in the future bailouts private wealth will be confiscated. The data is from 2009-2010 so especially in the PIIGS countries it could be overinflated after 3 years of austerity still is a powerful indicator of major unbalances in the Eurozone.

Italian median household wealth was indeed over three times larger than Germany’s. But that wasn’t the problem. The problem was Cyprus.

Cypriot households (CY), as measured by both their median and average wealth, were the second richest in the Eurozone. Median household wealth of €266,900 was over five times Germany’s median of €51,400. 

Average household wealth reached a phenomenal €670,900, 3.4 times Germany’s €195,200, and just shy of Luxembourg’s €710,100. Rarefied levels of wealth achievable only by small countries with huge and murky banking centres, or lots of oil. Few countries in the world are in that elite club.

And Germans based on median household wealth, were the poorest in the Eurozone.

It wasn’t that Cypriot households earned a lot of money—they earned the same as German households! They just knew how to hang on to it. At least until their bubble blew up.

By now, wealthier German households, those who own property and stocks, are significantly better off than they were in 2010, and they have since pulled up the average. Median household wealth, however—almost none of them own property or stocks—has certainly been left behind, again.

In the meanwhile in Cyprus real estate values, after a mind-boggling bubble, have been plunging for over two years; and billions in bank deposits have evaporated. 

Spanish household wealth has also been caught in a downward spiral of devastating unemployment and an exploding housing bubble—Spanish households lead the survey with a homeownership rate of 83%. In 2010, homeowners valued their homes at bubble prices. By now, much of the home equity Spaniards were clinging to has dissipated—with dramatic impact on household wealth.

Central bank sources told the FAZ that the Bundesbank and the ECB, to avoid stirring up a storm at an inconvenient time, kept this explosive wealth data secret until after the Cyprus bailout had been decided. But the data also explains the political motivation for the haircuts of account holders in Cypriot banks.

Eu Wide Bank Confiscation Approaching

What happened in Cyprus is unfortunately going to be replicated all over Europe, the reason is simple at the end there is not enough money to bailout Spain and Italy, the system used so far in Portugal, Greece and Ireland is not sustainable, let us even suppose for one moment that Germany is willing to help Italy and Spain, it will not work, there is not enough money to sustain those rapidly decomposing economies and even if Germany would mortgage its future it would only kick the can down the road for few more years.

The crisis is systemic and the jump-ship set of mind is already in place all over Europe.
Italy and Spain are doomed, France is on the brink.
Cyprus has been correctly addressed as a guinea pig for future bail (out-in) but at the end all minds go to Italy with its large savings base and Spain with his colossal bank crisis.
This week Italy's largest bank CEO contemplated such a move and alarm bells should start ringing all over Europe:

From Bloomberg: Unicredit says global rule needed

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

Unicredit knows the Cyprus effect is coming to Italy and Spain and it is asking a global coordination to ring fence the EU from massive capital flows.
What is scaring is that we have moved from a world where property and savings were guaranteed to a world where property is no longer safe and where starting from bankers to politicians a framework is being created to justify or legalize such confiscations as necessary.

From Reuters: EU to push for losses on big savers at failed banks.

The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.

Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.

"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.

"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.

The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.

Hokmark urged savers to check their banks' health before taking the risk of depositing money.

"If you put your money in Royal Bank of Scotland ... or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.

Looking ahead, the implication is that no one should place more than €100,000 in any bank (but then since every rule can be twisted according to the moment's necessity who know if 100.000 will still be the threshold in 1 year time).
So no one will invest in Europe especially in questionable Southern European banks.
Instead, expect capital flights to resume in different, more creative forms.
Pressure is going to rise on offshore banks as well to undermine their attractiveness and willingness to accept deposits from EU citizens, proof enough is this week leaks on offshore accounts.
A major campaign has started to coral money inside the EU in anticipation of the Great Confiscation and Great Depression approaching.
My only tip if you have money inside the EU is time to move out before the trap is in place.

After Cyprus levy; are Italy and Spain next?

Cyprus crisis is reaching his climax this weekend but regardless of how it will develop served well in distracting the media and the EU population from the bigger fishes frying in the EU pan, Italy and Spain.
So despite dimmed lights on the Italian political disaster and the Spanish banking Armageddon it is worth highlighting the following news:

Via El Pais (Via Google Translate),
The Minister of Finance and Public Administration, Cristobal Montoro, has advanced on Tuesday that the government will impose a type "moderate" to bank deposits to compensate communities that saw their tax autonomy canceled after the Executive created a state tax 0% rate.  This tax on bank deposits, which has nothing to do with Cyprus, does not affect savers but requires credit institutions to pay for that capture deposits. 

"The autonomous communities receive timely and therefore financially compensation shall implement a moderate rate in the state tax on bank deposits," said the minister, adding that this kind "will not be much higher than 0%" . 

The Minister of Finance has clarified that such "moderate" will have no tax collection effort, "but that these regions serve to offset the revenue loss to see."  So, he assured that the amount will correspond to the amount "exact has been undermined by the cancellation of regional taxes". 

Subsequently the Spanish Minister of Finance & Public Administration announced a tax or bank levy (probably 0.2%) to be imposed on bank deposits, without details on which deposits will be affected or timing.

and on Italy:

In an article on Handelsblatt the chief economist of Commerzbank says: Italy should bring a unique wealth tax.

It is a myth to talk of crisis-strapped states. Even the German Institute for Economic Research (DIW) and the chief economist of Commerzbank, Joerg Kraemer says the numbers suggest a different view.

Kramer relies on surveys of the European Central Bank. Net financial assets of the Italians are 173 percent of gross domestic product (GDP). This is significantly more than the net financial assets of the Germans, which corresponds to 124 percent of GDP, said Kramer for Handelsblatt Online.

"So it would make sense, in Italy for a one-time property tax levy," suggested the Bank economist. "A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product."

Italian Elections increase doubts over long term reforms

Italians head to the polls on February 24-25 and never before the political scenario has been so chaotic and appalling.

We are witnessing new political movements like the 5 Stars movement climbing up to third place in a matter of months and never before we have seen Germany actively entering the Italian political debate to try and keep Berlusconi at bay.

 

All this is adding up to financial uncertainty on the future of Italy and at large of the Eurozone.

Pier Luigi Bersani, who heads the centre-left PD was considered the assumed new prime minister just a few short weeks ago, at least in the Chamber (the lower house of parliament).

It's all up in the air now as Silvio Berlusconi's PDL has staged a massive rally in the polls.

Berlusconi has been on a rampage lately blaming Germany and Chancellor Angela Merkel for the unemployment problems in Italy, promising to refund the hated IMU (property tax) and more exotically declaring that tax evasion is justified.

Beppe Grillo's Movimento 5 Stelle (Five Star Movement) which has been largely ignored in the Italian press has been wildly popular at rallies. Grillo has a chance to come in second place.

Mario Monti, who heads the centrist Con Monti per l’Italia (With Monti for Italy) coalition, is running a very distant 4th.

Poll Blackouts

Officially, pollsters cannot post poll results in a blackout period before the election. That blackout period started February 9. Below Reuters' 8th of February polls.



Those results are misleading because they do not include undecided voters, and the undecided vote is a very large 20-25 percent!

With such little difference between Berlusconi and Bersani, and with huge rallies for Beppe Grillo and Berlusconi, any outcome is possible.

Germany Warns Against Berlusconi

Of potentially more importance, Berlin Warns Italians against Berlusconi

Here are a few examples from the story.

German Finance Minister Wolfgang Schäuble reportedly said (but later denied) "Silvio Berlusconi may be an effective campaign strategist, but my advice to the Italians is not to make the same mistake again by re-electing him."

Polenz, a senior member of Chancellor Angela Merkel's Christian Democrats, said: "Italy needs political leaders who stand for the future. Berlusconi is certainly not one of them."

One Italian bank even went so far this week as to issue a report arguing that a Berlusconi election would almost certainly force the country to apply for emergency bailout aid from the EU. Mediobanca, Italy's largest investment bank, wrote that "a last-minute Berlusconi victory would scare the market sufficiently to put pressure on the spread."

"Silvio the Savior"

Spiegel reports Berlusconi's Faithful: 'Only Silvio Can Save Italy'

Adoration of Berlusconi in Italy remains widespread. In the parallel universe occupied by his followers, there is no room for doubt about Berlusconi and lines are clearly drawn. Silvio is good and the others are bad.

These fans gather at his speeches, like the Saturday rally in Palermo, where thousands crowded into the venerable Teatro Politeama. There were women in long fur coats and fine gentlemen in three-piece suits. Dock workers like Ferrante squeezed with them through the entrance, everyone pushing and shoving each other like adolescents at a rock concert. The hundreds who didn't make it in must stand outside.

Fully a quarter of Italians are prepared to vote for Berlusconi again. It is an astounding degree of homage paid to man who faces allegations of abuse of power and bribery; who faces the scandal surrounding the underage escort Karima el-Marough, alias Ruby Rubacuori; who has been blasted for blatantly misogynistic comments; and who broke many promises as prime minister. Instead, the opposition, left-leaning judges and even the Germans are blamed for all that is not right with Italy.

At best, Bersani will win the Chamber and lose the Senate. That would likely result in a hung parliament.

Anti-German sentiment in Italy is high already. The entrance of German politicians into the battle may fuel that sentiment in a major way.

It is conceivable "Silvio the Savior" pulls off a stunning upset win in both the Chamber and Senate, but a Senate victory would still require a coalition (no party will come close to a majority).

It may be difficult if not impossible for any party to form a Senate coalition if Monti's party does poorly as expected.

Regardless Berlusconi there seems to be no good outcome for Italy.

Global Manufacturing Ranking

The leaders of global manufacturing are changing rapidly, China, India and Russia are rising and Germany, Japan, UK, and Canada are sliding. The following chart simplifies the evolution of global manufacturing economies over the last four decades.